What Is Accounting? Know Your Basic Accounting Concepts And Principles3 min read
Accounting or accountancy is basically the measurement, analysis, and communication of information concerning non-financial and financial entities including corporations and businesses. This includes the preparation of reports for decision making purposes, tax accounting, and auditing purposes. The process of accounting involves the collection, recording, classifying, and communication of information that pertains to a company’s financial activities. This also involves the establishment of principles and rules governing how the various transactions are recorded, monitored, and reported on.
Within accounting, there are three main categories: Professional accounting, also known as accounting management, or managerial accounting, and Public accounting. Professional or managerial accounting focuses on the organization’s financial records and the identification of managerial transactions. These include the movement, storage, procurement, sale, transportation, and disposal of funds. Public accounting, on the other hand, considers the financial records of a non-profit organization or government agency.
One major part of accounting involves the preparation of accounting reports. Accounting reports are objective in nature, which means that they represent what has been recorded, and what is being said about it at present, as of a certain date. Generally speaking, an accounting report will contain one of five forms: Financial statements, Business performance statements, Internal and External reports, Presentation and preparation of financial statements, Management’s report, or Management’s perspective statement. Financial statements are reports that summarize a company’s financial activities for the year, the quarterly periods, or yearly period. Business performance statements, on the other hand, describe the nature of a business as of a particular date and year.
Accounting helps managers make strategic decisions about their company by providing them with information regarding the state of their business. Proper accounting helps managers reduce their costs and increase their profits, because accounting helps them accurately determine which of their assets, liabilities, revenues, and expenditures are productive and which are unproductive. Moreover, accounting helps a company to know its exact position in a particular industry, how to monitor and measure its performance in comparison to other similar companies, and how to identify opportunities to improve its operations.
Another important function of accounting is to provide support for businesses. This is achieved when an accountant correctly completes financial transactions and prepares reports that are used in making business decisions. Accounting provides managers with information regarding the financing requirements of a company. A company’s books of accounts can be used to determine its cash flow, its capacity to generate cash, and its ability to pay interest and dividends. Accounting also helps managers make informed business decisions, because it contains information regarding borrowing and lending, production and sale of company securities, corporate purchases and sales, inventory, and internal policies and practices related to business finances. Therefore, it is essential to learn the basic accounting concepts and principles.
Learning managerial accounting requires training and study. To become an accountant, at least a bachelor’s degree in accounting, business, or a related field is required. Graduates of ivy league universities with majors in accounting are more likely to find jobs immediately after graduation. Although an accounting degree is only a secondary education, it is still one of the most highly sought-after degrees by professional employers. The demand for accountants is expected to rise, which could make obtaining an accounting degree a little bit easier than in the past.